Bilateral netting is a legally enforceable arrangement between a bank

Bank

A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...

 and a counterparty that creates a single legal obligation covering all included individual contract

Contract

A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

s. This means that a bank’s obligation, in the event of the default or insolvency

Insolvency

Insolvency means the inability to pay one's debts as they fall due. Usually used to refer to a business, insolvency refers to the inability of a company to pay off its debts.Business insolvency is defined in two different ways:...

of one of the parties, would be the net sum of all positive and negative fair values of contracts included in the bilateral netting arrangement.